Six Tips for Using Data to Make Decisions
“A point a view can be a dangerous luxury when substituted for insight and understanding.” – Marshall McLuhan
The Harvard Business Review (HBR) reports that “Companies are vacuuming up data to make better decisions about everything from product development and advertising to hiring.” Here is why: according to McAfee, “Data and algorithms have a tendency to outperform human intuition in a wide variety of circumstances.”
So, applying a data-based approach to decision-making works in business, but does it also work better in the realm of personal decisions.
Levels of decision-making
We make decisions every day, from what time to wake up, to what to have for breakfast, and what to wear. These types of daily decisions are routine, habitual, and often made without making a conscious decision.
We casually make other straightforward decisions with barely a second thought: when to get groceries, buy new shoes, pay bills. For the most part, we consider our bank account balance before we shop or pay bills—we know there’s a fee for overdrawing accounts. On the other hand, we know there are consequences to not shopping (empty refrigerator) or paying bills late (late fees). In these cases, making a decision requires that we weigh good and bad outcomes. Even if we tend to do that on autopilot, we are looking at the positive and negative sides of our decisions.
Our decision-making processes diverge most dramatically when it comes to higher-level decisions with more significant consequences. It turns out that some of us rely on data to light the right path, while others rely on instinct or their gut and hope for the best. Calling it luck or intuition, the latter group ignores the option of reviewing evidence and chooses to rely on perception instead.
And there’s the rub.
The perception—consequence spiral
Decisions have consequences whether they are based on data or perception alone. Problematic outcomes arise when one’s perception is flawed or biased. The more experience we gain, the more opinionated we become, which affects our perception.
As writer and critic C. S. Lewis noted: “We are not living in a world where all roads are radii of a circle and where all, if followed long enough, will, therefore, draw gradually nearer and finally meet at the centre: rather in a world where every road, after a few miles, forks into two, and each of those into two again, and at each fork, you must make a decision.”
- At the most simplistic level, Lewis is telling us that if we choose to sleep late, we may have to skip breakfast and grab the first outfit we see.
- At much higher levels of decision-making, Lewis is saying that deciding, for instance, to quit your job precipitously, without data on today’s market for your skills, leads to a series of decisions down the line—decisions that will impact you and your family for years to come.
All decisions, big and small, lead to positive or negative outcomes, and to more decision-making.
Steps to apply data to your decision-making
For higher-level decisions, in particular, changing your decision-making process may seem daunting.
As Carly Fiorina said, “ The goal is to turn data into information and information into insight.” Committing to a data-based decision-making approach may eliminate a future consequence spiral.
Following are six steps to support your new approach to decision-making.
- Recognize a tendency toward too much confidence.
HBR mentioned eliminating overconfidence as the first step, citing a report that called it “ubiquitous, particularly among men, the wealthy, and even experts,” and adding, “the chances are good that you’re more confident about each step of the decision-making process than you ought to be.”
- Recognizing a tendency toward too much confidence allows you to cast a sharper eye on your decision-making process, improve your data gathering, and prepare yourself for an unexpected result as you move through the new process.
- Review your goal(s).
To ensure that each decision along the line is a good one, HBR suggests here that “you need to have a sense of two things: how different choices change the likelihood of different outcomes and how desirable each of those outcomes is.”
- In other words, you need a sense of which outcomes help you get closer to your goals.
That makes reviewing your goals the first step. Applying a data-based approach is as simple as starting with a review of your goals in order to keep them in the forefront of your mind as you make your decision.
- List the pros and cons.
The formal label for this step is cost-benefit analysis. It refers to writing down a list of the potential negative outcomes if you go in one direction (the costs) alongside a list of the likely positive outcomes if you choose to go in the opposite direction (the benefits).
These cost-benefit lists not only decode the potential costs and benefits of your decision, they literally draw your focus to these four points:
- Will this decision be likely to get you closer to your goals?
- How much you know about this decision now?
- What information may you be missing?
- Are you ready to make this decision?
- List your assumptions.
Not an easy step, this one is vital to recognizing your own leanings and the sources of those—for example, a lack of data. Are you rooting for one specific decision? If so, you may be disguising your leanings as “data” and more important, you may cherry-pick who to listen to and which data to incorporate into your process—and which to omit.
Writing down your assumptions does not necessarily mean that you eliminate them. It enables you to consider them as one factor as you weigh new information.
- List your missing information and fill in those blanks.
Next, make a list of the information you discovered you still need in order to make a more educated decision. Determine where to find the answers, whether that be from a friend or more formal consultant, online, in a professional journal, or elsewhere.
- Review your missing data with the idea that what you discover may disprove your assumptions.
- One caveat: use credible sources for your data gathering. Remember ‘garbage in, garbage out’.
Once you have gathered your new information, revisit your cost-benefit lists and fill in those blanks.
- Ask yourself, how often would this happen?
As a final check on the validity of your new process, HBR suggests that you examine the probability of the outcomes you now expect: how likely are those outcomes? Asking and answering that question enables you to have a higher degree of confidence that your decision will lead to the best outcomes as you make progress towards your goals.
Incorporating intuition may make sense at times in decision-making, but in general, there never has been a better time to kick the trust-your-gut habit and begin making significant decisions based on gathered evidence.